On January 17, the Manitoba Public Utilities Board issued its Order no. 5/12 respecting Manitoba Hydro's 2010-2012 general rate application.
Hydro had applied for an average rate increase of 2.9% effective April 1, 2010, and a further rate increase of 2.9% effective April 1, 2011. The Manitoba PUB denied the application, and instead granted an average rate increase of 1.9% for 2010 and 2.0% for 2011.
The Order is notable because the Board set out, in great detail, a number of areas in which Hydro had failed to make its case for the required increase. Some of the more notable findings of the Board included:
- The Board expressed displeasure that Hydro had not filed proposed export contracts with the Board for review
- The Board expressed unease about Hydro planning for the construction of significant new generation and transmission ($20 billion worth) before it is needed by Manitoba ratepayers, in the expectation that the related costs can be recoverd through export sales. The Board was particularly concerned that export revenues would not cover the cost of that new construction, requiring Manitoba ratepayers to subsidize those export contracts
- The Board was concerned that the rate increase requested by Hydro (2.9%) would not be sufficient for the required subsidization, leading to further significant rate increases in future years
- The Board pointed to a failure of Hydro to initiate a regulatory review of its business plan, and in particular its capital plans. The Board noted that Hydro was continuing to spend $1-2 million per day on its preferred development plan without such a review having taken place. The Board specifically stated that it would not support a rate increase to recover future expenses related to untested and unapproved capital plans
- The Board expressed its concern with Hydro's lack of a defined approach to updating the rate of escalation for major project costs (particularly where a gap between those costs and revenues from export contracts is at ratepayer risk)
- The board noted that Hydro had not provided a risk analysis of its operational and business risks (long-requested by the Board)
- The Board expressed concern that Hydro's cost containment measures are too modest and too short-lived (noting in particular that staffing levels have "ballooned" since Hydro's last expansion phase in the 1990s
- The Board expressed concern that Hydro did not receive any premium or recognition in export markets arising from its generation of hydroelectricity (as compared to fossil sources)
- The Board noted that Hydro was not accounting for what it considered a worst-case export market scenario, due to a number of factors including increasing project costs, historically low natural gas prices, the high Canadian dollar, lack of carbon pricing and U.S. wind subsidies
The Board's decision can be found here.